Oil prices are climbing amid signs the U.S. may be planning to launch military strikes on Iran, raising questions about the potential economic fallout of heightened conflict in the region.
President Trump has ratcheted up pressure on Iran, home to some of the world’s largest oil reserves, over the country’s disputed nuclear program. Open hostilities between the countries could constrict global oil flows, raising U.S. energy prices and driving up inflation, according to economists.
While Mr. Trump hasn’t yet made a final decision about whether to strike, top national security officials have told the president that the military could be ready as soon as Saturday, sources familiar with the discussions have told CBS News.
At the inaugural meeting for Mr. Trump’s “Board of Peace” on Thursday, the president said Iran has about 10 days to make a deal ending its nuclear program, or “bad things will happen.”
“Maybe we’re going to make a deal,” he said. “You’re going to be finding out over the next probably 10 days.”
How high could oil prices rise?
The most immediate economic impact would be felt in the oil market, given that Iran’s crude production and its control of the northern side of the Strait of Hormuz, which is used by ships carrying about 20% of the world’s daily oil supply. On Thursday, a barrel of benchmark U.S. crude rose 2.6% to $66.71, a 16% increase since the start of the year.
The impact of a military conflict would depend on the scale and intent of an American attack, including whether U.S. forces avoided strikes on Iranian oil facilities and on any response from Tehran, Wall Street analysts noted.
“If [Iran’s] oil infrastructure is hit and oil supplies are affected … we suspect that oil prices could rise towards $100 per barrel, especially as that would raise the probability that Iran attempts to block shipping routes through the Strait of Hormuz,” Capital Economics analysts said in a recent research note.
At its narrowest point, the Strait of Hormuz is just 21 miles wide, making it vulnerable to disruption. The channel, which connects the Persian Gulf to the Gulf of Oman and the Arabian Sea, is used by other major oil-producing nations in the region to ship crude to other countries.
Although oil prices have jumped, they remain far below their most recent peak of $123 per barrel in March 2022. Even if the U.S. strikes Iran, the impact on oil supplies may be minimal or short-lived, adding to the uncertainty of the impact on the global economy, experts noted.
How could a U.S. attack affect inflation?
Iran produces 4.7 million barrels of oil per day, or about 4.4% of global supplies, Capital Economics notes. While most of Iran’s oil is shipped to China, any disruption could trickle through the world economy by pushing up petroleum prices.
